What Took So Long?

It started with a request from me in late July that the lender hold on ordering the appraisal. I wanted to make sure the rehab work was finalized, but I made a couple mistakes.

I thought I was delaying the appraisal and inspection, but the inspection had already been ordered. Ooops.

The rehab was almost finished, so I just wanted to wait another few days. I thought there was still plenty of time before our original target closing date of mid-August.

I wasn’t exactly on top of things though. My wife and I went from a Flagstaff family reunion, to Chicago to celebrate my mom’s 60th birthday, to Bigfork Montana for a wedding. During the two week trip, real estate wasn’t always top of mind.

A week and a half went by before the bank reached out and said “can we order the appraisal?” I said “oops, go ahead”.

The Appraisal Process

Turns out I shouldn’t have delayed anyways because appraisals are slow going these days. I assumed it would have been like the last purchase I made in 2014. Given the tons of home sales in 2017, it wasn’t.

One of the issues that led to the financial crisis was appraisers weren’t exactly independent. Banks could choose who they used, going with appraisers who would do whatever the banks wanted – essentially always quickly giving back a good valuation.

Now there is an intermediary. The lender puts in a request to a separate appraisal scheduling company (who I will refer to as “the appraisal desk”). This company has a pool of appraisers they use, and assign someone without the bank being involved.

That’s great and all, but boy did it slow things down! My lender’s communication with this outsourced appraisal desk was like a game of telephone: slow and unreliable.

Here’s what happened:

I delayed the start 1.5 weeks accidentally

Appraisal is ordered and it takes 1 week for appraiser #1 to call the seller to schedule

The seller rejected the appraiser after he supposedly said he doesn’t use rentals as comps, so he requested it be reassigned to a new appraiser

Another week goes by before appraiser #2 reaches out

Appraiser #2 calls the seller and leaves a voicemail. Then he tells the appraisal desk he is too busy for the job, so turns it down.

That same day the seller calls appraiser #2 back and he agrees to take the job. They schedule a date and just have to let the appraisal desk know it’s back on.

The appraisal desk never gets back to him before the scheduled appraisal date, so appraiser #2 cancels the appointment

Meanwhile it has been assigned to appraiser #3, but it took another week for him to call and schedule for a week out

Appraiser #3 turns in the report to the appraisal desk, but there are unknown delays. Maybe they wanted to replace a comp or two?

Two weeks after the initial appraisal was submitted, I get a copy

Closing is scheduled for 1 week later

What a mess!

It would have been so much easier if the appraisal desk had simply kept with appraiser #2 and replied to his emails. It seems like there was a 1 week delay any time someone contacted the appraisal desk. Maybe emails are printed and delivered by pony express?

Throughout this I was talking to my two contacts (seller and lender), trying to facilitate communication between two other people (appraisal desk and appraiser).

When the mess with appraiser #2 was happening, my lender said: “You are way more involved at this point that 99% of buyers.”

To which I replied: “That’s because I’ve lost confidence in your chain of communication and ability to get this done.”

In the end, the appraisal came back as expected ($105k) and everything was a go.

What Did I Learn?

Sometimes things don’t go as planned…

Just like working with a property manager, I found myself working the lender to instill a sense of urgency. If they had a task to take care of, I was making daily phone calls.

One of my take-aways is that the lender isn’t the only person I needed to worry about – whoever they outsource the appraisals to is important as well. I’m not sure I could have known this ahead of time, but I sure didn’t feel there was a good enough channel of communication between them. Or that the lender was on my side and hustling enough.

So next time I’ll probably go back to the lender (#1) I used on my first two properties (the refi was also through lender #2). It was a tiny more expensive, but worth it.

I also learned that I shouldn’t assume I know everything just because this is my 3rd rental property. It wasn’t exactly the same as last time and I made a small mistake because of it (while distracted with my personal life).

Fresh eyes with a beginner’s mindset next time.

All Good Now

The seller could have backed out and found another buyer since it was beyond our initially agreed upon window. Or the appraisal could have finally come back too low.

Even though it took a while, everything worked out in the end. So all things considered, waiting a bit longer is no big deal!

I want to hear from you – have you had any surprises during a rental property closing process? Did it work out in the end?

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Comments

A lot of strange things going on in this sale that I’d probably have walked away from honestly.

I find it strange the seller could reject an appraiser. Appraisals are done for the buyer not the seller.

It also stands out to me the seller would reject because they don’t use rentals as comps. In most markets, rentals sell for less than normal homes. So generally a higher appraisal would be beneficial to the seller.

So if this is not the case, I’d ask why rentals sell for more than regular homes. Property condition is always adjusted for so recent renovations are not an adequate excuse.

Since this is a turn key company I wonder if their other sales in the area provide the comps they want used rather than the nearby lower priced homes?

It’s also strange that the appraisal came in exactly at the sale price. I’m sure this happens from time to time but it’s never happened to me. Also, since they went through three appraisers it makes me question things.

Just seems to remind me of stories I hear about 06/07. I’d honestly call up appraiser #1 and pay them to give me a second opinion just for my own peace of mind.

In these cash flow markets, rentals sell for more than most regular homes. Why? There are people fixing them up and flipping them to investors. These are completely rehabbed and a much higher quality. So for a comp you’d want to use something of similar quality (along with location, size, etc) – which almost is always going to be another flipped rental (a foreclosure sure doesn’t help). Sure you could make adjustments, but the same could be said about picking a 2×1 house and adjusting up. Too big a difference to be accurate.

It is strange that the seller would reject an appraiser and I love your idea to call him up to get his thoughts. I don’t know what that conversation was like, just what the seller told me.

It is common for SFH to appraise exactly at the sell price. I’m surprised its never happened to you, but I guess you are doing mostly multifamily where it isn’t strictly comps but also income based. Basically I see the appraisal as protecting the bank, not the buyer. The buyer should still ok with the price after receiving the inspection report – they should have already run their own rough comps. If you are relying on the appraisal to save your butt, you are doing it wrong. The bank? They haven’t done comps or an inspection yet. The appraiser in this situation is giving a yes/no to the bank more than trying to give the buyer a perfect representation of the value. Do you agree this is whats happening on a strictly comps based post rehab appraisal?

In the end the comps looked legit, so I don’t believe there was any funny business.

Congratulations on your 3rd property. Keep us posted as when you sign a tenant.
I love the cash flow on these properties. I learned from your post that even when you know you’re dealing with professionals, you have to stay involved to make sure things happen when they are supposed to happen.

Ya unfortunately incentives aren’t always aligned. I had to close in a certain time period or they would have sold it to someone else, the lender didn’t exactly act with a sense of urgency. Same with switching tenants. Time is money!